September 21, 2016

A Herding Behavior

A report from The Investor on Colorado. “The Denver metro area remains a popular destination for Millennials, employers, investors, and apartment developers in 2016. To capitalize on the strength of the apartment market, 23,650 units are under construction and an additional 22,000 units are in planning. This includes mid-rise and high-rise properties, two property types that have been seeing record pricing levels. In June of 2016, Joule, a 16-story high-rise in Denver’s Golden Triangle sold for $120 million, or an astonishing $535,000 per unit. Three weeks later, Simpson Housing purchased Broadstone Blake Street and 2101 Market, two mid-rise communities adjacent to Denver’s Coors Field for $143 million, over $365,000 per unit.”

“Difficulty in obtaining construction debt may lead developers to reassess proposed projects, however, there is no stopping units currently under construction.”

The Daily Cougar on Texas. “National student housing developer Aspen Heights is breaking out of college towns and into the Third Ward, building a new complex on Old Spanish Trail. The property from the rising student housing group is scheduled to house its first University of Houston and Texas Southern University students in the Fall of 2017. Kiley Rapier and Geron Fuller, the complex’s managers, said the apartments will bring luxury to student living.

Theatre freshman Clare Keating summed up many students’ thoughts when asked about the new property: ‘That would be cool, if I could afford it.’”

The Capital Times in Wisconsin. “The Hub is emblematic of a national trend of amenity-rich student housing developments that are transforming downtown Madison and other college towns around the country. The arrival of the $5 billion student housing industry has brought a new class of developers to Madison, some observers say. The lucrative private student housing market heated up just as top-ranked public universities across the country were feeling the pinch from years of reduced funding from their states and looking for alternative sources of revenue.”

“Andra Ghent, a professor of real estate at the Wisconsin School of Business, said high-end student housing is feeding demand. The ability to rent by the bed to a population likely to be seduced by amenities that aren’t expensive to build makes for a potentially high return on investment, she said. ‘Once somebody makes a few good returns, you get a herding behavior,’ Ghent said. ‘But I don’t know if the returns will be that attractive going forward.’”

From Yahoo Finance on California. “For San Francisco Bay Area residents long accustomed to skyrocketing rents and real estate prices, there’s some relief on the horizon. That’s due to an overall increase in the number of homes and apartments on the market, which keeps prices from rising. The housing research firm Axiometrics estimates 12,300 new rental units will glut the Bay Area cities of San Francisco, Oakland and San Jose this year, up from nearly 7,000 units in 2015 and 6,700 units in 2014.”

“As a result, landlords from San Francisco’s South of Market neighborhood, all the way to Cupertino, are doling out tantalizing incentives to land tenants, such as four to six weeks free rent, discounts to tech workers, and even free bikes. The other reason for the Bay Area’s cooling rents and real estate prices? ‘Peak unaffordability,’ as Trulia Chief Economist Ralph McLaughlin calls it. ‘Your average buyer can’t afford a home,’ McLaughlin explained.”

The Real Deal on Florida. “The developer of H3 Hollywood, a condo project in downtown Hollywood with 60 percent of its units under contract, has halted construction and sales while it tries to find financing, The Real Deal has learned. The move comes as the planned 15-story, 247-unit development is at the 13th floor of construction, sources told TRD.”

“In an emailed letter to buyers, the developer, Hollywood Station Investments LLC, said construction had been on pace until recently, ‘However, general market conditions have deteriorated and this has affected the condominium like many other projects.’ Construction is now ‘in standby but we are diligently working with a lender to obtain construction financing and we hope to resolve this matter in the coming months,’ the development group, led by Diego Besga and Alex Nahabetian, wrote.”

“Fortune International Realty handled sales for the development at 2165 Van Buren Street, but the project has stopped marketing units, an agent told TRD. Buyers under contract have placed 50 percent deposits on their units. Condos at H3 Hollywood begin at $250,000, with a median price per square foot of $300. Units range from studios to one- two- and three-bedrooms, from 594 square feet to 1,579 square feet.”

“Construction had been expected to be completed by December 2016 or January 2017. Calls to the project’s sales director, members of the development team, their attorney and the general contractor were not returned on Wednesday.”

“H3 Hollywood is the latest project to be canceled, put on hold or delayed amid a slowdown in the condo market, as the strong U.S. dollar and foreign economic turmoil continue to dampen sales. Among the developments, Boulevard 57, a planned mixed-use project on Biscayne Boulevard in Miami, called off condo sales this summer, and the entire site is now being marketed for sale. The Conrad Fort Lauderdale Beach, a condo-hotel in Fort Lauderdale, is facing months of delays, a construction lien from its general contractor and an opening date that hinges on a yet-to-close refinancing deal. And Auberge Miami, a planned condo tower just north of downtown Miami is delaying construction until at least year-end 2018.”

Buyers Are Looking For Projects That Will Rapidly Appreciate

KUTV reports from Utah. “Utah’s housing market is booming with homes selling in a matter of days with multiple offers at or above asking price. Prices have been rising so fast, some worry the state and the nation could be in for another housing bubble. Here in Utah, home prices have recovered to pre-crash prices, adjusted for inflation. Nationally home prices are about one percent shy of the peak pre-bubble. ‘The area I am worried about is the value of new home construction,’ said Robert Spendlove, a senior economist for Zion’s Bank who keeps a close eye on Utah’s economy. Overall, he sees strength. Looking at the housing market and especially new home builds, he ‘wouldn’t say people should wait- but they should be careful not to overbuild.’”

“His reticence comes from the possibility that interest rates could rise while families are waiting for their house to be built, pricing them over their allotted budget by the time they reach closing. But there are differing opinions on whether or not Utah is nearing a housing bubble. Jim Wood, who’s studied Utah’s housing market for 40 years and is a senior fellow at the University of Utah’s Kem Gardner Policy Institute, ‘doesn’t see any sign of a bubble in the housing market, nor in new construction.’”

“He’s watched housing in Utah since the early ’70s and believes Utah’s prices will only keep increasing into 2017. Wood tells people “don’t wait for prices to go down. That’s not going to happen in the short term.’ If you’re in the market for a new house, Wood’s advice ‘would be to get into a home as soon as you can.’”

“Only time will tell if Utah’s housing market will stay on its upward trajectory, but neither economist sees a big bubble that will burst and hit Utah families. There is also a difference in the so called bubble effect this time around. The difference today is that rising prices are not being driven by bad mortgages.”

The Wall Street Journal. “Mortgage-finance giant Freddie Mac and two nonbank lenders are loosening income and documentation requirements for mortgage applicants in a new pilot program. The changes announced Monday are designed to help boost mortgage originations among first-time buyers, applicants with low-to-moderate incomes and those who live in underserved areas.”

“The moves come nearly a decade after the start of the mortgage meltdown, as many consumers remain shut out of the housing market largely because they can’t meet the underwriting criteria that most lenders require. Under the Freddie program, applicants will be able use the income of people who will live with them but aren’t going to be on the mortgage to qualify.”

“In addition, income from second jobs that borrowers have held for a relatively short period will be factored in. The pilot also doesn’t require bank statements that would show a paper trail of how some borrowers save for their down payments. Many of the pilot’s features are similar to what Fannie Mae currently allows on some mortgages it purchases but are new for Freddie Mac, which is among the largest purchasers of mortgages in the country. Freddie Mac says it purchases one in every four mortgages originated by lenders in the U.S.”

The Nevada Appeal. “The Nevada Rural Housing Authority Home at Last program is providing an increasing number of mortgage grants in Fallon. The program, which started 10 years ago and expanded its loan product suite last year, has helped 146 families in Churchill County with $20.4 million in mortgage assistance. The Home at Last enhancements combined with the Federal Housing Administration (FHA) mortgage insurance premium decrease last year is encouraging low-to-moderate income borrowers into the housing market, often for the first time.”

“The program has provided $1 billion in mortgages and $28.6 million in down payment assistance to help over 5,300 households statewide. The expansions addressed homebuyer and lender feedback to provide more borrower down payment and closing cost aid. ‘Many people think homeownership isn’t possible due to rising home prices, reduced inventory or lack of a down payment,’ said Diane Arvizo, director of Homebuyer Services for the program. ‘The reality is with rising rents, lack of adequate and affordable rental housing as well as the influx of people moving to the region to seek expanded job opportunities, now is a great time to buy.’”

The SFist in California. “Smack dab in the middle of a terrible affordability crisis, San Francisco is getting a jolt of what it really needs: ultra high-end condos. Or so argues Forbes, which on Friday published a post celebrating the fact that housing in the city by the Bay has ‘finally’ begun to cater to the super rich. Think helipads, infinity pools, and brass door-handles custom-forged ‘a few steps from the Seine’ — you know, rich people stuff.”

“‘After years of lacking the kinds of glossy, amenity-filled towers found in abundance in other big markets, high-end condominium developments are coming to San Francisco,’ the article explains. ‘And they are packing some of the highest price tags in the city.’”

“But don’t worry, these building aren’t pulling in global investors who will buy the property and just leave it sitting empty. Rather, Forbes tells us, they are meeting a local need. ‘These projects will appeal to local buyers,’ Alan P. Mark, the president of a high-end development sales and marketing firm, explained the paper. ‘Bay Area buyers are looking for projects in prime locations that will rapidly appreciate.’”

The Record in New Jersey. “The asking price has been lowered – again – on the Saddle River chateau owned by Grammy-winning singer/songwriter Mary J. Blige. The eight-bedroom, 4-acre estate is now listed for $9.88 million, down from $13 million earlier this year. The house had been on the market for as much as $13.9 million in 2011. Blige bought the gated stone manse at 119 E. Saddle River Road for $12.3 million in 2008, as the housing bubble was beginning to deflate. The home was brand new then; it had been built on speculation on the site of two ranch houses.”

“Blige is not the only Saddle River celebrity trying to sell a home. Rosie O’Donnell has listed her home at 115 East Allendale Road for just under $6.5 million. The actress/comedian bought the six-bedroom house for $6.375 million in October 2013. Another celebrity, Sean ‘Diddy’ Combs, recently sold his Alpine home for an undisclosed amount. He had bought it for $6 million in 2004 in the name of an LLC and had been trying to sell it, off and on, since 2006. In 2011, the asking price was $13.5 million, but that was cut several times, reaching $7.9 million earlier this year.”

“There are 38 homes listed for sale for $6 million or more in Bergen County, according to the New Jersey Multiple Listing Service.”

The Advertiser in Louisiana. “Lafayette and its neighbors remain mired among the worst 10 housing markets in America, Nationwide Economics reported. Nationwide economists said Lafayette ranked fifth in the bottom 10 of 400 housing markets across the country. All of the bottom 10 are located in identifiable ‘energy’ markets. ‘You’re still seeing the downstream impacts of low oil prices,’ said senior economist Ben Ayers.”

“While mining and logging has ‘hit bottom’ and was ’slowly coming up,’ he said, manufacturing jobs declined by about 3,000 in the five-parish area that includes Acadia, Iberia, Lafayette, St. Martin and Vermilion. ‘Manufacturing falling off is not helping,’ he said.”

“For those shopping for a home, the low ranking means ‘it’s a great time to buy,’ Ayers said. For homeowners looking to sell: Not so much.”